Senior leaders, in fact leaders at all levels within the US Army
Medical Command (MEDCOM), should understand basic principles of
contracting for healthcare. Many practical and legal problems can be
avoided if these principles are kept in mind as MEDCOM strives to
provide healthcare to our Soldiers and other beneficiaries.

SCENARIO

Consider the following scenario which is based upon recent events
at a major Army hospital. You are the Deputy Commander for
Administration (DCA) at a hospital we will call The Medical Center. Your
facility has previously awarded a contract for nurses to the company
NursesRUS (NrUs) to address a critical shortage of nurses at The Medical
Center. Under that contract, NrUs provides 47 nurses, all of whom work
within the Department of Nursing. Most of the NrUs nurses are either
former or retired Army Nurse Corps nurses or previous government
civilian (GS) nurses, and many have previously worked at The Medical
Center while on active duty/GS status. You have an open-door policy
under which, once a month, you entertain complaints and allow anyone to
come in and air their grievances. During one such open-door session,
Nurse Johnson, an NrUs nurse, complains that she is not receiving her
paycheck on a regular schedule. She also states that many NrUs nurses
are not being paid on time, and further, more than a few of the other
NrUs nurses are a month or more behind in receiving their paychecks.
Nurse Johnson recently retired from the Army and worked for you before
she retired.

What should you as the DCA do? What other parties should you
involve? Should you have even entertained Nurse Johnson's
complaint? As noted above, this particular scenario actually occurred,
and is a textbook case of a good-intentioned DCA who failed to
understand basic contracting principles. I will explain what happened at
the end of the article.

First Fundamental

The first fundamental you must understand is that you, as a MEDCOM
leader, do not have authority over contractor employees. While you are
responsible and accountable to deliver healthcare to authorized
beneficiaries, NrUs nurses are not your employees. They do not work for
you, but rather are employed by a contractor, in this case, NrUs, which
has a contract with an authorized MEDCOM agent empowered to enter into
contracts which legally bind the Army. As a group, MEDCOM leaders are
not empowered to enter into such contracts unless they are warranted
contracting officers.

The only MEDCOM official who has authority over NrUs is the MEDCOM
contracting officer that signed the contract with that company. That
contracting officer almost always has a contracting officer's
representative (COR), who helps the contracting officer monitor the
performance of a company working under contract. The COR is usually
nominated by the activity that needs contracting support. The
contracting officer then appoints, in writing, the COR. The appointment
letter specifies that the COR is only the eyes and ears of the
contracting officer. In other words, the COR is to report contract
performance issues to the appointing contracting officer so that the
official with proper authority can attempt to resolve such issues.

To summarize this first principle, contractor employees are not
government employees. Rather, they are employees of the company that
hired them. Their employer is the holder of a contract with MEDCOM, and
that contract is solely within the authority of the contracting officer
who entered into that contract. Applying this principle to the described
scenario, the DCA should not have heard complaints from someone who is
not a government employee. Nurse Johnson is paid by NrUs, and the most
that the DCA should have done was to tell Nurse Johnson that she should
inform the COR that her employer, NrUs, was not paying its employees in
a timely manner. It would then be the COR's duty to report the
problem to the contracting officer.

SECOND FUNDAMENTAL

The second fundamental is that government contracts are legal
instruments between the government authorized buyer (the contracting
officer) and the seller, NrUs. It is important that MEDCOM leaders
clearly understand that there are 2 parties to a contract for sale of
healthcare services. In our case, the buyer, as legal agent for the
director of nursing at The Medical Center (the requiring activity with
the need for contracted nurses) was a warranted contracting officer
assigned to support The Medical Center. Further, the seller of those
services was NrUs, which had the obligation to supervise and compensate
its own employees, in this case, Nurse Johnson. The responsibility to
pay Nurse Johnson rested with NrUs, not the government.

Put another way, Nurse Johnson is not "your troop" or
"your employee." In every government contract, just as in
every contract you enter into in your private life, there is a buyer and
seller. This fact is often lost in the day-to-day mission performance
where contractor employees work alongside government employees, whether
active duty military or civil service. Compounding the problem is the
fact that often both the buyer's employees (active duty military or
GS nurses) are performing the same healthcare functions as the
seller's employees, in this case, Nurse Johnson and her fellow NrUs
employees.

THIRD FUNDAMENTAL

The third fundamental is that MEDCOM healthcare contracts, as with
all federal government contracts, are bound by laws which are not
applicable in the civilian world. Our contracts are funded with federal
appropriated funds (mostly defense health appropriations). Because of
this, federal laws and contracting rules, not state laws, apply.

The contracting rules are contained within the Federal Acquisition
Regulation (FAR) (48 CFR chap 1). The federal rules generally require
competition among healthcare sellers to win our contracts, and require
that, for a MEDCOM contract to be legally binding, it can be entered
into or changed only by a warranted contracting officer. As the US
Supreme Court has stated (Federal Crop Insurance Corp v Merrill, 332 US
380), the fact that sellers

... must turn square corners when they deal with the
government" * does not reflect a callous outlook ... it merely
expresses the duty of all courts to observe the conditions defined by
Congress for charging the public treasury.

With regard to our Nurse Johnson situation, the FAR specifically
states that it is illegal to treat Nurse Johnson as if she were a
government employee, and it is illegal for anyone other than a warranted
contracting officer to enter into or change a MEDCOM contract. Could the
DCA legally have excused Nurse Johnson from coming to work? Hopefully
the answer is painfully apparent to anyone who understands that Nurse
Johnson is an employee of a recipient seller company, NrUs, which had
been awarded a federal (FAR) contract for healthcare services.

FOURTH FUNDAMENTAL

The fourth fundamental is that acquiring healthcare services under
the FAR is a 3-step process:

1. Acquisition Planning--Begins when the customer determines the
agency's needs. The customer coordinates with the contracting
officer. Often, the commanding officer/MEDCOM leader is in charge in
this phase. The customer delivers an acquisition package to the
contracting office.

2. Contract Solicitation and Award--Only the contracting officer
has authority to enter into a contract. A contracting specialist
delivers the acquisition package (from step 1) to the contracting
officer, who solicits offers, evaluates offers, and awards the contract.
The contracting officer is "the buyer" for the customer.

3. Contract Administration--Only the contracting officer has
authority to administer, modify, or terminate a contract. The
contracting officer appoints a contracting officer's representative
(COR) to conduct contract surveillance and communicate, through the
contracting specialist, to the contracting officer. The contracting
officer administers the contract for the customer.

In the case of Nurse Johnson, the director of nursing at The
Medical Center, let us call her COL Caring, determined that she needed
47 nurses more than she had in her active duty military/GS nursing
staff. She determined what nursing specialties were needed and then went
to her supporting resource management office with a statement of work to
determine if The Medical Center had the appropriate funding to send the
acquisition package to her supporting contracting officer. COL Caring
also nominated someone for appointment by the contracting officer as the
COR.

The supporting warranted contracting officer then proceeded to
obtain competitive offers from companies interested in providing the
required services/personnel. The contracting officer picked the winner
of this competition based upon criteria provided by COL Caring. For
instance, if COL Caring, as the head of the requiring activity needing
the contract support, was willing (and capable) to pay more for a
company with more experienced nurses, the solicitation for offers would
include that criteria. Once the contracting officer picked the winner
(NrUs in this case) the contracting officer signed the contract award,
and the result is a legally binding FAR contract.

Finally, NrUs employees began performing under the contract, and
the terms of employment between NrUs and Nurse Johnson is a matter
solely between those 2 parties. If Nurse Johnson, or any other NrUs
nurse, fails to get paid or fails to show up for work, that is an
employment matter between NrUs and its employees. Failure to show up for
work is a contract performance problem which should be noted by COL
Caring and reported immediately to the COR. The COR should then
immediately report the contractor's performance failure to the
contracting officer.

[GRAPHIC OMITTED]

The following is the actual sequence of events upon which the above
NrUs scenario is based. After listening to her complaint in the
open-door session, the DCA told "Nurse Johnson" that this was
an intolerable situation and that the Army did not function in this
manner. He asked her to come back in a week if the nonpayment problem
persisted. A week later she came back with several other
"NrUs" nurses and it became apparent that the problem was
getting worse. The DCA stated that the Army does not "mess with the
troops' pay," and should that occur, the troops would not come
to work. He told the NrUs nurses he would look into the situation. He
never informed "COL Caring," the COR, or the contracting
officer, and then he became so busy that he never looked into the
situation, although he intended to do so. The NrUs nurses started
calling in sick which caused a severe problem for COL Caring. When she
could no longer cover for the nurses with other staff, she finally
called the supporting regional contracting officer, although she never
informed the COR. The COR only found out about the problem when the
regional contracting officer arrived at The Medical Center with a letter
terminating NrUs for a FAR contract default. Fortunately, the
contracting officer discovered the basic facts described herein,
discovered a systems problem with payment of contractor invoices, and
was able to resolve late payments by the Army to NrUs. Once NrUs began
receiving timely payments for its services, the employees began to
promptly receive their pay (we think). All the contracting officer and
COL Caring knew was that the sickout situation resolved itself soon
after the payment problem was addressed.

CONCLUSION

This is a very brief overview of contracting fundamentals, a
simplistic representation of which is provided in the Figure. I
encourage all readers to ask for additional training/seminars from their
Office of the Staff Judge Advocate or their healthcare contracting
activity if they wish more information on various subjects, such as
hiring, interviewing, timesheets, commending, awarding, causing removal
or just critiquing contracted performance, trying to resolve contractor
employment problems, requiring work different than that which the
government bought, and labor hour problems. The fundamentals of these
issues should be familiar to all AMEDD leaders.

Kim K. Judd, JD

Mr Judd is an Attorney Advisor in the Contract Law Section, Office
of the Staff Judge Advocate, US Army Medical Command, Fort Sam Houston,
TX.